Why there’s more to Yes Bank resignations than a board seat

Two board resignations from private sector lender Yes Bank this week, coupled with recent downgrades, have caused concerns among investors. The stock fell by three percent on Wednesday, after the bank announced the second board exit.

Independent director Mukesh Sabharwal has quit to pursue academic interests, as per the bank’s exchange filing. Ajai Kumar, non-executive, non-independent director, also announced his departure from the board citing personal reasons, another exchange filing from Yes bank on June 10 showed.

Bank sources that CNBC-TV18 spoke to confirmed that the reason for the exits was personal indeed, and not linked to any demand for a board seat by the promoter group. A potential conflict arising out of former MD and CEO Rana Kapoor seeking directorship on the board was ruled out, as the current Articles of Association of Yes Bank may make it difficult for Rana Kapoor to make a comeback unless he replaces himself with this board nominee, Ravindra Khanna, or secures co-promoter Madhu Kapur’s consent.

Regarding appointment of directors to the bank board, Section 110 of the Articles of Association states: "So long as the Indian Partners hold along with any of their affiliates directly or indirectly, atleast 10 percent of the issued and paid up capital of the Company, the Indian Partners shall have the right to recommend the appointment of three directors collectively referred to as the IP Representative Directors.” It further adds: "Two of the IP representative directors as well as the Rabo representative director shall not be liable to retire by rotation."

Accordingly, Rana Kapoor and Madhu Kapur have jointly nominated two directors on the board already, Ravindra Kumar Khanna and Shagun Gogia. While Khanna was Rana Kapoor’s nominee, Gogia was Madhu Kapur’s. A source at Yes Bank explained that for Rana Kapur to get a board position, the only way would be replacement of Ravi Khanna with himself, as Madhu Kapur is unlikely to agree to have Kapoor and his nominee Khanna both as two out of the three promoter-nominated directors.

At its annual general meeting today, Yes Bank will be seeking shareholders’ nod to ratify the appointments of both Ravindra Khanna and Shagun Gogia.

While the bank is yet to respond to CNBC-TV18’s query, Rana Kapoor responded to the query on whether he would be seeking a directorship on the board of Yes Bank by saying he has “no such intimation,” and that any reports suggesting otherwise were “false news.” He went on to add that his two nominees -- Ravindra Khanna and Shagun Gogia -- were already on the board of Yes Bank.